Providing termination benefits for employees

ABSTRACT

A computer-based method for pricing and managing an insurance product under which an insurer will provide termination benefits to employees who are non-voluntarily terminated from employment by an employer. The product reduces adverse selection risks and durational risks associated with periods of unemployment.

BACKGROUND OF THE INVENTION

[0001] This invention relates to providing termination benefits foremployees who have been non-voluntarily terminated from employment.

[0002] One common way to control such benefits is through a privatearrangement between an employer and each displaced employee, forexample, a standard severance policy or a special termination package.Typical arrangements provide for a single payment on the date oftermination. The amount of the termination payment is often based on theterminated employee's salary level and tenure. Outplacement services aresometimes offered.

[0003] Government sponsored unemployment insurance programs alsotypically pay benefits for a fixed number of weeks and usually arefunded by premiums imposed on employers.

[0004] Private long-term disability insurance, funded by premiums, paysbenefits when an employee is unable to work because of illness orinjury.

[0005] An employee can also privately obtain coverage that continuespayment of credit obligations for a brief period during unemployment.

[0006] Non-voluntary job changes are common. The causes include“downsizing”, “rightsizing”, mergers and acquisitions, product linechanges, technology advances, degregation expanding global markets, andgeographic redistribution of work force.

[0007] Although time between jobs tends to be limited for anyone whoactively seeks a new job, it can be longer than is provided for intypical severance packages. The “fixed” monthly living costs incurred bymoderate and high income employees, such as mortgage, credit card debt,tuition, car and insurance payments, tend to be large. An interruptionin an employee's income stream after termination from one job and beforethe start of another one can cause disruption in life style andjeopardize his credit rating and therefore be a significant concern tohim.

[0008] Many employers incur large costs for non-voluntary terminationsof their employees. The annual costs of non-voluntary terminations mayvary and in an occasional year be sharply higher than normal.

SUMMARY OF THE INVENTION

[0009] Among other things, the invention overcomes previous concernsabout the risks associated with adverse selection by employers inconnection with employment termination insurance products and makes suchproducts feasible and profitable.

[0010] In general, in one aspect, the invention features acomputer-based method for determining a price for an insurance productunder which an insurer will provide termination benefits to employeeswho are non-voluntarily terminated from employment by an employer.Historical information is stored about rates of termination of employeesof the employer who are non-voluntarily terminated during apredetermined historical period. Other historical information is storedindicative of periods of time during which employees who arenon-voluntarily terminated are expected to remain unemployed. Based onthe stored historical information, an amount of money is estimated thatwill be required to pay termination benefits under the insurance productto employees who are non-voluntarily terminated, assuming a continuationof the historical termination rates. A price is determined for theinsurance product that is smaller than the estimated amount of money sothat the employer's cost for termination benefits will be smaller underthe insurance product than without the insurance product.

[0011] In implementations of the invention, the historical informationabout rates of termination includes numbers of terminated employees peryear during the historical period, salary histories of the terminatedemployees, tenures of the terminated employees, and job classificationsof terminated employees. The price for the insurance product isdetermined by considering different cells of employees separately, eachcell including employees whose salary histories and tenures fall withinpredefined ranges. The price reflects expected period of unemploymentthat are shorter than the historical periods of unemployment. Theestimated amount of money that would be required to pay terminationbenefits is adjusted for expected inflation.

[0012] The insurance product includes a basic coverage that will providetermination benefits to no more employees than the average annualpercentage of employees who were non-voluntarily terminated during thepredetermined historical period, and the price determination reflectsthe basic coverage. The insurance product also includes an enhancedcoverage that will provide termination benefits to employees who exceedthe average annual percentage of employees who were non-voluntarilyterminated during the predetermined historical period, and the pricedetermination reflects the enhanced coverage. The enhanced coverage canbe limited by a stop loss amount, and the price determination is basedon the stop loss amount. Rights to the enhanced coverage are madeavailable over time only in accordance with a vesting schedule.

[0013] In some implementations, the determination of price for theenhanced coverage yields a pricing formula based on numbers ofterminations and the pricing formula is applied retroactively based onactual termination experience.

[0014] A limit of coverage is determined for each of the cells expressedas a maximum percentage of employees in that cell who will be eligiblefor basic termination benefits and if the stop loss approach is used forenhanced coverage, the vested percentage amount of the enhanced coveragefor each cell, and a separate sub-price is set for each of the cells.

[0015] In general, in another aspect, the invention features acomputer-based method for managing a durational risk associated with aninsurance product. Information is stored about dates of termination andhistorical employment experiences of employees who have been terminatedfrom employment by the employer and are covered by the insuranceproduct. Information about displacement duration is also stored. Basedon the stored information, information is generated that is useful inassisting terminated employees in finding new jobs within periods thatwill reduce the impact of durational risk. Dates of reemployment ofterminated employees are tracked. Payments of termination benefits arecontrolled based on stored dates of termination.

[0016] In implementations of the invention, the payments are alsocontrolled based on individual pay period benefit amounts and cumulativebenefit amounts.

[0017] In general, in another aspect, the invention features acomputer-based method of administering termination benefits. Informationis stored that identifies separate time limits of termination benefitsto be paid with respect to employees belonging to different risk cells.Information is also stored about claims made for termination benefitswith respect to the employees belonging to different risk cells. Thelimits of termination benefits are compared with claims made for each ofthe risk cells, and benefits are withheld when the actual time for arisk cell exceeds the limit for the risk cell.

[0018] In implementations of the invention, information is stored aboutthe periods of time that an employee must remain unemployed beforetermination benefits are paid. The time periods are compared with anactual time period during which an employee has remained unemployed.Benefits are withheld until the actual time period exceeds the storedtime period.

[0019] Information may be received, stored, and searched about employeeseligible for state unemployment insurance benefits. The eligibleemployees can be compared with employees who are terminated fromemployment by the employer. Benefits may be withheld when a terminatedemployee's eligible status for state benefits matches a rule forwithholding benefits.

[0020] In general, in another aspect, the invention features acomputer-based method of administrating basic and enhanced coverages ofinsurance products. The method includes calculating, storing, reportingand distributing broker commissions, claims administration fees, IPoverride, fronting fees, carrier overhead, and premium tax, andcalculating and reporting required risk based capital.

[0021] In general, in another aspect, the invention features acomputer-based method for use in reducing a durational risk associatedwith an insurance product. Information is stored that indicates receiptof notification of non-voluntary termination of an employee covered bythe termination benefits. Information is also stored that can beassembled into prescripted interviews of terminated employees. Inresponse to the stored information about notification of non-voluntarytermination, a prescripted interview is provided to aid in accumulatinginformation useful in placing the employee in a new job. The results ofthe interview are sorted and stored.

[0022] In general, in another aspect of the invention, the durationalrisk is reduced by storing information about the qualifications of aterminated employee for reemployment, storing information aboutavailable jobs, and matching the stored information. Retraining seminarmay also be provided.

[0023] Amount the advantages of the invention are one or more of thefollowing. For the employer, the insurance preserves cash flow, mayreduce termination costs, makes the costs more predictable, helps manageearnings, protects against potentially catastrophic expenses associatedwith reductions in force, reduces exposure to displaced employeelitigation, maintains current year deductibility of premiums paid, andenhances the image of the employer as a good corporate citizen. To thecovered terminated employee, the invention provides salary continuationfor a specified period of time during unemployment and results-orientedjob placement services. To the insurer, the invention provides a neededcoverage to a substantial global market at a quantifiable risk andcompetitive price. Risk of adverse selection by employers is reducedboth with respect to the employer's employee pool as a whole, and withrespect to individual cells of employees. The manager of the delivery ofbenefits receives a fee for services and a possibility of additionalprofit if it successfully reduces the period of unemployment after thetermination.

[0024] Other advantages and features will become apparent from thefollowing description and from the claims.

BRIEF DESCRIPTION OF THE DRAWING

[0025]FIG. 1 illustrates an analysis of risk.

[0026]FIG. 2 illustrates employee cells.

[0027]FIG. 3 is a block diagram of parties to and processes ofunderwriting.

[0028]FIG. 4 is a block diagram of parties to and processes of claimadministration.

[0029]FIGS. 5, 6, and 7 are flow charts.

DESCRIPTION OF THE PREFERRED EMBODIMENTS

[0030] A concern of insurers (underwriters) with respect to anyinsurance product is so-called adverse selection. If buyers of theinsurance can manipulate the nature or timing of events that triggercoverage under the insurance, the insurer runs an intolerable risk thatbuyers will take advantage of that possibility. Certain kinds ofinsurance have not been offered because of such adverse risk concerns.

[0031] Employment termination insurance, for example, has been viewed ascarrying such an adverse selection risk if the premium is based on somecalculated rate of terminations of all employees, e.g., an averagehistorical termination experience for all employees of the employer.

[0032] Employers often plan and are in control of the nature and timingof major termination occurrences. They could buy such insurance with theintention of receiving coverage payments for a planned major terminationevent while paying a relatively small premium based on an assumed rateof terminations that reflects the employer's historical experience.Employers would also be able to plan in advance and control terminationoccurrences that are not extraordinary in terms of the number of peoplebeing terminated, but are extraordinary in terms of salaries.

[0033] The effect of adverse selection can be reduced enough to yield aviable insurance product by changing the way in which the risks areisolated, the premiums are calculated, and the benefits paid. One way toreduce the adverse selection risk is to divide the coverage into a basecoverage and an enhanced coverage, and price the base and enhancedcoverages in different ways. Segmenting the employees of an employerinto cells by tenure, salary, and class also provides risk isolation.The coverage then is priced separately for each cell based on thehistorical termination experience for that cell. Coverage limits areapplied to each cell separately.

[0034] As seen in FIG. 1, historical non-voluntary terminationinformation for a wide range of employers shows three categories ofinsurance risk. The same analysis also applies to the employee pool ofan individual employer, and to employee cells within the employee poolof a given employer.

[0035] A base risk 20 is associated with normal non-voluntaryterminations that occur continually in the ordinary course of businessfor any established/mature employer. This base risk varies little overmany years and typically represents about 1.67% terminations per year.Because the variability is small, this risk can be accurately quantifiedas the average annual non-casual terminations experienced by theemployer during an historical five-year period.

[0036] An aberrant risk 22 is associated with occasional short-lived“spikes” with moderately higher terminations than for the base risk.These could be associated, for example, with a termination scenario thatinvolves a plant closing, a contract termination, a workforceconsolidation, or a sale of an affiliate. The aberrant risks typicallyoccur periodically with a period of Y years (e.g., Y=3, 4, or 5 years)and may involve, e.g., 2.5% to 5% terminations per year.

[0037] A catastrophic risk 24 may occur periodically with a period Z(e.g., Z=5, 7, or 10 years) that is longer than period Y. Thetermination rate could be as much as 10% to 15% per episode. Examples ofcatastrophic termination are a corporate restructuring, workforcerealignment, or competitive or technological pressures. A catastrophictermination event caused by a Chapter 7 or Chapter 11 filing is anexcluded event.

[0038] In a year in which an aberrant episode occurs, the 2.5% to 5%termination includes (is not in addition to) the normal 1.67% that wouldbe expected for that year.

[0039] The base risk can be insured in a way that is largely insulatedfrom adverse selection because its variability tends to be small and isinherent in the relationship between the employer and employee,especially given the pressures of technology, deregulation, and a globaleconomic marketplace. Aberrant and catastrophic risks are subject toadverse selection because they are more highly variable and controllableby an employer.

[0040] A non-voluntary termination insurance policy for an employer mayprovide base coverage for the base risk and enhanced coverage for atleast part of the aberrant and catastrophic risks. The premium that ischarged for the coverage and the limits on the coverage are determinedseparately for each of the employee cells of the employer.

[0041] As seen in FIG. 2, each employee cell 10 may be diagrammed (threedimensionally) based on the range of salaries, job classes (e.g.,secretary, senior manager, labeled A, B, C, D), and range of tenure inyears (e.g., 0-5 years) to which its members belong. (An employee musthave three years of tenure to be vested and qualified for coverage.)

[0042] The coverages provided by the insurance are defined in thepolicy. Before the insurance contract is signed, the employer specifiesthe amount and duration of benefits to be paid to qualifying employeesin each cell who are terminated unilaterally by the employer fornon-causal reasons. For example, senior managers with 5 to 10 years oftenure and salaries between 50,000 and 75,000 may be given 26 weeks oftermination benefits. The weekly termination benefit is set at apercentage (e.g., 100%) chosen by the employer at the time the insuranceis bought.

[0043] The policy sets a maximum limit on the number of employees ineach cell for whom base coverage will apply. The maximum is based on amoving five-year historical average base risk experience forterminations of that cell. For example, if the cell described above hadan historical annual average termination rate of 1.67%, the policy wouldprovide termination benefits for as many as, but no more than, 1.67% ofthe employees in that cell during the first year of the policy. At theend of the first year, and each subsequent year, the historical averagepercentage is recomputed rated on the previous five years (and in thatsense in a running average). In determining the average, if any, of theprevious five years has a rate that is more than 10% higher than therunning average (e.g., 10% in one year when the running average is1.67%) that percentage is reduced to 1.1 in the running average(1.1×1.67, in the example) and the running average is recomputed.

[0044] The policy also may set a maximum limit on the number ofemployees in each cell for whom (enhanced) coverage will apply. Themaximum is based on a stop loss percentage selected by the employer,(e.g., 5% or 15%). The stop loss percentage is conceptually attributableto aberrant and catastrophic risks but is not necessarily the same asany historically determined percentage. If the chosen stop losspercentage is 5% in our example, the extended coverage of the policywould provide termination benefits for 3.33% (5% minus the 1.67% alreadycovered by base coverage) of the employees in that cell each year.

[0045] However, in one implementation approach, the maximum terminationbenefits for extended coverage are not fully available in the first yearof the policy. Rather they are phased in (vested) over several years.For example, in the first year, only 20% of the 3.33% would vest. So inthe first year, the maximum benefit under extended coverage for the cellwould be 0.66% of the number of employees in that cell. The reason forrequiring vesting is to reduce the risk of adverse selection bypreventing an employer from reaping the full coverage for a plannedaberrant episode in, for example, the first year after buying thepolicy.

[0046] An alternative way to provide extended coverage while reducingthe adverse selection risk is to price the extended coverageretroactively. In this approach, the employer is given the pricingformula before buying the policy. Full enhanced coverage beginsimmediately, but the employer is charged after the fact, at the agreedpricing, for years in which the termination experience exceeds the basecoverage and falls within the extended coverage.

[0047] The premium to be paid by the employer for the insurance policyis determined by adding cell premium amounts determined for eachcategory of coverage (base and extended) of the employee benefit cellsof that employer. The premium amount for a cell is based on the benefitamounts and durations for that cell, the historical experience for thatcell, a deductible amount and the stop loss percentage chosen by theemployer, if applicable.

[0048] The premium amount for each category of coverage is a fraction ofthe termination expense that the employer would otherwise incur ifterminations occurred at the historical rate (for base coverage) or atthe stop loss rate (for extended coverage if applicable). The fractionis expressed in terms of the number of weeks of coverage for which theemployer is charged in the premium compared with the stated number ofweeks of benefit.

[0049] For example, if the historical base coverage experience is 1.67%and the termination benefits extend for 26 weeks, the premium could beset based on 18 weeks so that the employer pays 18/26 of 1.67% of theaverage salary of employees in that cell multiplied by the number ofemployees in the cell, for base coverage, net of unemployment insurancebenefits received by the terminated employee.

[0050] A similar computation applies to the extended coverage withrespect to the 3.33% (in the example discussed above) except that thenumerator may be a higher number of weeks, say 20 weeks, to accommodatethe fact that the duration of unemployment may be somewhat longer inaberrant or catastrophic termination scenarios than for the base risk.

[0051] By making the premium computation on a cell by cell basis, highsalary cells will bear higher premium amounts for coverage that islimited as to those cells. This reduces the risk of adverse selection byan employer with respect to planned termination scenarios involving onlyhigh salary employees.

[0052] If the time it takes for an employee to become re-employed is thesame as the benefits period (e.g., 26 weeks), the insurer would losemoney because the premium only contemplates that benefits will last fora shorter period (e.g., 18 weeks). The result of the pricing approach isthat the employer gets a reduction in his average annual terminationexpense. The insurer would undertake the risk (called a durational risk)that termination benefits will actually be greater than the premium. Forexample, assuming a 26 week benefit, the premium may only be based on 18weeks. The insurer could also benefit from the upside of reemploymentexperience that is better than 18 weeks. The insurer, at its option,could choose to assume deceptional risks at different points in the 26week period, for example, during the final two weeks.

[0053] However, in implementing the insurance product, the insurer maydelegate both the downside risk and the upside potential implicit in thepricing strategy to a claims administrator. The insurer would pay theclaims administrator exactly the number of months of benefit paymentsreflected in the premium amount (e.g., 18 weeks) for each terminatedemployee, regardless of the actual number of weeks of unemployment. Theclaims administrator would bear the obligation to pay the employee forsome or all of the full coverage (e.g., until the employee isre-employed, up to 26 weeks) and would receive the profit and bear theloss of any difference between the actual amounts paid to the employee(until he is re-employed) and the premium-linked amounts received fromthe insurer.

[0054] An example of an insurance policy that provides such benefits isattached as Appendix A and incorporated by reference.

[0055] Additional factors affect the coverage provisions of the policyand the pricing of the premium. The pricing model must take account ofthe tax rate on the premium, the fronting fee paid to the insuranceentity, the expenses of administering claims, the fee to the claimsadministrator, overhead of the insuring entity including IP royalties,profit that is expected to be reaped on the premium by the insurer,costs of reinsurance, income from investments of funds, the governmentmanaged unemployment insurance benefits rates, the FICA and FUTA taxrates to the employer, the workmen's compensation premium rate of theemployer, and the cost of outplacement services.

[0056] An employee who is placed in a new job and then either loses itor elects to leave will return to the coverage pool for the remainingbenefit period or until he is re-employed, but the period during whichhe was not being paid by the claims administrator represents potentialprofit to the claims administrator.

[0057] The pricing can be done using a model created as a MicrosoftExcel spreadsheet. An example of such a model that uses the inputsdiscussed above to generate a premium for the product is attached asAppendix B in the form of a CD-ROM. The file name is TEMPLATE.XLS and itcan be run on Microsoft Excel 97, a copy of which is also beingprovided. Other kinds of software could be used to compute the insuranceprices. The software could be run on any conventional personal computeror on any variety of other computer platforms. The software and all ofthe data needed for the pricing computations could be stored on a harddisk drive or other media.

[0058] As seen in FIG. 3, the insurance policy is sold by a broker 34 toan employer 30, which has qualified employees 32 who are covered by thetermination benefits. Before the sale may be completed, the employerprovides underwriting data 36 to an insuring entity 40 and the insuringentity 40 provides a price 38 (premium) to the employer. Theunderwriting data is loaded onto a storage medium in a computercontrolled by the insuring entity and is used by the pricing model togenerate the price. The insuring entity gives the broker authority 54 touse its name and make the sale on its behalf.

[0059] The insuring entity 40 provides a variety of services associatedwith the underwriting process. It does market research to identifyprospects and does preliminary qualification of targets. It helps withpreparing preliminary sales calls and with the initial presentation,including assistance with selection of variables and benefits. Theinsuring entity also gathers the historical data specific to theprospective customer. It develops the pricing and makes the underwritingdecision. It helps with follow-up presentations including cost/serviceanalyses. Once the underwriting decision is made, the insuring entityprovides the policy and other documentation, activates the account,books claim liabilities, tracks amounts, frequency and duration of, andeither directly or through the claims administrator pays claims, assistsin providing retraining (when appropriate) and provides job searchassistance, e.g., through a claims administrator.

[0060] The underwriting data includes historical termination informationabout each cell of employees. The data also includes choices made by theemployer that affect the computation of the price. The choices mayinclude the weeks of benefits (e.g., 26 weeks) that will be given toemployees in each of the cells, the percentage of salary which willdefine the benefits, a deductible amount for enhanced coverage, and astop loss percentage, if applicable.

[0061] The underwriting data is stored in computer readable form on astorage medium and used on a computer as part of the pricing model. Theinsuring entity uses the underwriting data to generate the price basedon subprices generated for each of the employee cells separately.

[0062] Once the price has been set and the employer agrees to buy thepolicy, a contract 50 (Appendix A) is provided by the insuring entity tothe employer. In return, the employer pays an annual premium 52.

[0063] The insuring entity 40 can be structured in a wide variety ofways either within one company or by agreements among companies. In theexample shown in FIG. 3, a lead insurer 56 issues the policy andreceives the premium but then cedes portions of the risks and premiumsto a guarantor 58 and to a reinsurer 60. Excesses 61 of premiums overbenefits paid are invested by an investment manager 62. The insuringentity uses computer software to track the effectiveness of theinvestment manager.

[0064] The insurance policy provides base coverage and enhanced coverage(if the employer so chooses). The lead insurer retains the obligation topay benefits on a percentage (e.g., 10%) of the base coverage, retainspart of the premium as compensation for that risk, and receives afronting fee of, say, 1% for its role in organizing the insuranceentities.

[0065] The lead insurer cedes a percentage (e.g., 90%) of the basecoverage risk and a percentage (e.g., 10%) of the enhanced riskobligation to the guarantor and pays, e.g., 89% of the base premium and10% of the enhanced premium to the guarantor. The remaining 90% of theenhanced coverage risk is ceded to the reinsurer and 90% of the premiumis paid to the reinsurer to compensate for its assumption of that risk.

[0066] The guarantor lends the use of its name (and implicitly its brandidentification and reputation) to the lead insurer. The guarantor usesan underwriting model, described below, to develop the prices based onthe historical termination data for an employer. The lead insurerlicenses 100 a claims administrator 68 to manage the payment of benefitsand the delivery of placement services. The claims administrator couldbe part of the insuring entity. If not, the lead insurer also pays theclaims administrator an administrative fee 102.

[0067] As seen in FIG. 4, during the policy period, claims managementand benefit payments are handled cooperatively by the claimsadministrator, the lead insurer 56, the employer 30, staffing agencies70, and training provider, that have arrangements with the claimsadministrator.

[0068] When the employer 30 non-voluntarily terminates an employee 32,notice of displacement 33 and a copy of the appropriate employee file issent from a computer 31 of the employer electronically to a computer 57of the lead insurer. The information 35 is promptly forwardedelectronically from the lead insurer's computer to a computer 69 of theclaims administrator.

[0069] Each time a payment is made, an invoice is automaticallygenerated and passed from the administrator's computer to the leadinsurer's computer. Funds to cover the benefits are then returnedelectronically to the claims administrator. The reimbursement by thelead insurer of its percentage of the benefit obligations continues evenafter the employee returns to work. If that occurs earlier than the endof the benefit period, the subsequent reimbursement payments by the leadinsurer are kept for the account of the claims administrator. This givesthe administrator a strong incentive to get each terminated employeere-employed at the earliest possible time.

[0070] Payments and services to the employee continue automaticallyuntil either the benefit period defined for that employee's cell ends,or the employee finds another job if that occurs sooner. If so, noticeof the new employment is given to the claims administrator's computerand is passed along electronically to the staffing agency computer as aninstruction to cease work.

[0071] To obtain benefits, the employee must also promptly give a noticeto activate service benefits 71 to the claims administrator 68. Thenotice to activate is matched in the computer 69 with the employee filethat has already been received from the lead insurer, which initiatesthe steps required to provide the termination benefits. The computer 69is arranged to provide resume information, employment files, and notices79 automatically to approved staffing agencies 70, which contact theemployees and provide placement and other services aimed at helping eachemployee to find a new job, reporting each client contact to the claimadministrator. The claims administrator may also provide assistance inplacement. The fees of the staffing agencies are paid by the claimsadministrator.

[0072] The responsibilities of the claims administrator includeassigning an individual claim administrator to each terminated employee.The claim administrator has direct telephone contact with the terminatedemployee using a prescripted interview and develops a standard resume. Adatabase search is done for possible matches with the employee's skills.Interviews may be scheduled. Training may be recommended and scheduled.Benefit payment authorizations are also reviewed and authorized.

[0073] Based on the day of termination, the employee cell to which theemployee belongs, and the benefits to be provided (all of which areprovided to computer 69 by the lead insurer), computer 69 automaticallydetermines the dates and amounts of benefit payments to be made andmails checks or makes direct electronic deposits for the employee. Theamounts of the payments are reduced by the amounts of state unemploymentbenefits whether applied for and received or not. Information 77 aboutthose would have been initially loaded in computer 69 from as part ofthe original claim management software.

[0074] The main business strategy of the claims administrator is toreduce the period of unemployment (displacement duration) so that it canmaximize, as its profit, the difference between the coverage paymentsreceived from the insuring entity and the benefit amounts paid tocovered, terminated employees. To achieve this, the claims administratormaintains strategic relationships with specialty staffing service firmsand specialty training companies, which provide temporary, contract, andpermanent placement of professional and technical employees and place ahigh value on retraining.

[0075] Flow charts can be used to illustrate methods of the invention.

[0076] Referring to FIG. 5, determining a price 300 for a productincludes the following sequence. Historical information is stored 302about rates of termination of employees of the employer who arenon-voluntarily terminated during a predetermined historical period. Theinformation includes numbers of previously terminated and processedemployees 304, salary histories 306, tenures 308, and jobclassifications 310. Historical information is also stored 311indicating periods of time during which employees who arenon-voluntarily terminated are expected to remain unemployed 311,including unemployment durations of terminated employees 312.

[0077] Limits of basic and enhanced coverage for each employee cell areestablished 314 using information provided by the insured.

[0078] The pricing process considers enhanced and basic coveragesseparately for each cell 316. An estimate is made 318 of the amount ofmoney that will be required to pay termination benefits under the basicinsurance product to employees who are non-voluntarily terminated,assuming a continuation of the historical termination rates.

[0079] The enhanced coverage can be based on the agreed stop loss amount320. The price determined to this point for each cell is then adjustedfor expected inflation 322. The price for the insurance product is setto be smaller than the estimated amount of money 324 so that theemployer's cost for termination benefits will be smaller under theinsurance product than without the insurance product.

[0080] If the enhanced coverage portion of the product is not to bepriced retroactively 326, then a price is set and a vesting schedule iscreated 328. If the enhanced coverage portion of the product is to bepriced retroactively, a pricing formula can be generated for each celland a retroactive payment schedule can be set 330.

[0081] The process of payment of termination benefits 398 includesstoring claims information 400 based on notifications of non-voluntaryterminations; storing information about time limits of terminationbenefits for each cell 402, and storing displacement durationinformation 404. Information useful in assisting terminated employees tofind new jobs is generated 406. This is done based on information aboutemployment qualifications 408, information for prescripted interviews410, and available jobs 414. Dates of reemployment are tracked 416.Limits of termination benefits are compared with claims made, by cell418. Limits implied by any vesting schedule are applied to enhancedbenefits 419. Benefits may be withheld based on the employee'seligibility for state benefits 421. Termination benefits are paid 420based on individual pay period benefit amounts 422, cumulative benefitamounts 424, and reemployment dates 426.

[0082] Referring to FIG. 7, the process for managing employmenttermination insurance finances 500 includes several steps. Data aboutpremiums paid is stored 502 as is data about benefits paid 504. Brokercommissions are calculated and paid 506 as are claims administrationfees 508, fronting fees 510, carrier overhead 512, and taxes on premiums514. Risk-based capital is also calculated and reported 516.

[0083] Other embodiments are within the scope of the following claims.

[0084] For example, the coverages could be split explicitly into threeparts, instead of bundling them into two coverages. The three coveragescould be basic, aberrant, and catastrophic.

What is claimed is:
 1. A computer-based method for determining a pricefor an insurance product under which an insurer will provide terminationbenefits to employees who are non-voluntarily terminated from employmentby an employer, the method comprising: storing historical informationabout rates of termination of employees of the employer who arenon-voluntarily terminated during a predetermined historical period, andhistorical information indicative of periods of time during whichemployees who are non-voluntarily terminated are expected to remainunemployed, based on the stored historical information, estimating anamount of money that will be required to pay termination benefits underthe insurance product to employees who are non-voluntarily terminated,assuming a continuation of the historical termination rates, anddetermining a price for the insurance product that is smaller than theestimated amount of money so that the employer's cost for terminationbenefits will be smaller under the insurance product than without theinsurance product.
 2. The method of claim 1 in which the historicalinformation about rates of termination includes numbers of terminatedemployees per year during the historical period.
 3. The method of claim1 in which the historical information about rates of terminationincludes salary histories of the terminated employees.
 4. The method ofclaim 1 in which the historical information about rates of terminationincludes tenures of the terminated employees.
 5. The method of claim 1in which the historical information includes job classifications ofterminated employees.
 6. The method of claim 1 in which the historicalinformation includes the numbers, salary histories, and tenures ofterminated employees and the price for the insurance product isdetermined by considering different cells of employees separately, eachcell including employees whose job classifications, salary histories andtenures fall within predefined ranges.
 7. The method of claim 1 in whichthe price reflects expected periods of unemployment that are shorterthan the historical periods of unemployment.
 8. The method of claim 1 inwhich the estimated amount of money is adjusted for expected inflation.9. The method of claim 1 in which the insurance product includes a basiccoverage that will provide termination benefits to no more employeesthan the average annual percentage of employees who were non-voluntarilyterminated during the predetermined historical period, and the pricedetermination reflects the basic coverage.
 10. The method of claim 9 inwhich the average annual percentage is adjusted to reduce the impact ofyears in which the percentage of employees who are non-voluntarilyterminated is aberrantly high.
 11. The method of claim 1 in which theinsurance product includes an enhanced coverage that will providetermination benefits to employees who exceed the average annualpercentages of employees who were non-voluntarily terminated during thepredetermined historical period, and the price determination reflectsthe enhanced coverage.
 12. The method of claim 11 in which the enhancedcoverage is limited by a stop loss amount, and the price determinationis based on the stop loss amount.
 13. The method of claim 12 in whichrights to the enhanced coverage are made available over time only inaccordance with a vesting schedule.
 14. The method of claim 12 in whichthe determination of price for the enhanced coverage yields a pricingformula based on numbers of terminations and the pricing formula isapplied retroactively based on actual termination experience.
 15. Themethod of claim 1 further comprising storing information aboutemployment demographics of employees of the employer sufficient tocategorize the employees into risk cells, determining a limit ofcoverage for each of the cells expressed as a maximum percentage ofemployees in that cell who will be eligible for termination benefits,and setting a separate sub-price for each of the cells.
 16. The methodof claim 1 further comprising storing information about employmentdemographics of employees of the employer sufficient to categorize theemployees into risk cell, and establishing a separate pricing formulafor each of the cells to be applied retroactively at each anniversarydate of the policy.
 17. The method of claim 15 in which the employeesare categorized based on salary, tenure, and job classification.
 18. Themethod of claim 16 in which the employees are categorized based onsalary, tenure, and job classification.
 19. A computer-based method fordetermining a component of price for a portion of coverage of aninsurance product under which an insurer will provide terminationbenefits to employees who are non-voluntarily terminated from employmentby an employer, the method comprising: storing historical informationabout rates at which employees of the employer were non-voluntarilyterminated in excess of an average rate of terminations during apredetermined historical period, storing a predetermined maximum numberof employees in excess of the average historical rate of terminationswho will be covered by the portion of the coverage for which the pricecomponent is being determined, and determining the component of pricebased on the predetermined maximum number of employees.
 20. Acomputer-based method for determining a component of price for a portionof coverage of an insurance product under which an insurer will providetermination benefits to employees who are non-voluntarily terminatedfrom employment by an employer, the method comprising: storinghistorical information about rates at which employees of the employerwere non-voluntarily terminated in excess of the average rate ofterminations during a predetermined historical period determining thecomponent of price for the actual number of employees who are terminatedin excess of the average rate of terminations during the predeterminedhistorical period.
 21. A computer-based method for determining a pricefor coverage of an insurance product under which an insurer will providetermination benefits to employees who are non-voluntarily terminatedfrom employment by an employer, the method comprising: storinginformation about employment demographics of employees of the employersufficient to categorize the employees into risk cells, determining alimit for basic coverage for each of the cells expressed as a maximumpercentage of the total number of employees in that cell who will beeligible for termination benefits, setting a separate price for basiccoverage for each of the cells, determining a limit for enhancedcoverage for each of the cells expressed as a maximum percentage of thetotal number of employees in that cell who will be eligible fortermination benefits, setting a separate price formula for enhancedcoverage for each of the cells, and determining the price for enhancedcoverage for each of the cells retroactively based on the actual numberof employees who are terminated in excess of an average rate ofterminations during a predetermined historical period.
 22. Acomputer-based method for managing a durational risk associated with aninsurance product under which an insurer provides termination benefitsto employees who are non-voluntarily terminated from employment by anemployer, the durational risk comprising the risk that the unemploymentperiods for the employees under the basic insurance product will begreater than historical unemployment periods, the method comprising:storing information about dates of termination and historical employmentexperiences of employees who have been terminated from employment by theemployer and are covered by the insurance product, storing informationabout displacement duration, based on the stored information, generatinginformation useful in assisting terminated employees in finding new jobswithin periods that will reduce the impact of durational risk, trackingdates of reemployment of terminated employees, and controlling paymentsof termination benefits based on stored dates of termination.
 23. Themethod of claim 22 in which the payments are also controlled on thebasis of individual pay period benefit amounts, cumulative benefitamounts, and reemployment dates.
 24. The method of claim 23 in which thedurational risk comprises a risk that the unemployment periods for theemployees under an enhanced coverage of the insurance product will begreater than the assumed duration as incorporated in a pricing formulafor the enhanced coverage.
 25. A computer-based method for reducing anadverse selection possibility for a risk associated with an insuranceproduct under which an insurer provides termination benefits toemployees who are non-voluntarily terminated from employment by anemployer, the method comprising: storing information that defines amaximum amount of money associated with the risk that may be paid astermination benefits for both a basic coverage and an enhanced coverageof the insurance product, providing a time-dependent vesting schedulefor a maximum amount of termination benefit under the enhanced coverage,and processing benefit claims with respect to the risk in a manner thatprevents payment of benefit claims that exceed the vesting schedule. 26.A computer-based system for determined a price for insurance thatprovides termination benefits to employees who are non-voluntarilyterminated from employment by an employer, comprising: storinginformation about historical termination experience for the employees,determining a base risk representing a component of the terminationexperience that has a relatively smaller variation over a period ofyears, setting a risk component of the price associated with coveringthe smaller variation base risk, setting a second component of the priceassociated with covering an enhanced risk with a predefined limit ofcoverage, the enhanced risk representing a component of the terminationexperience that has a relatively larger variation over a period ofyears, and determining the price based on the first and secondcomponents.
 27. The method of claim 26 in which the second componentcomprises a pricing formula, and the determining of the price is doneretroactively by applying the formula to actual termination todetermined the second component.
 28. A computer-based method ofadministering termination benefits paid under an insurance product toemployees who are non-voluntarily terminated from employment by anemployer, the method comprising: storing information that identifiesseparate time limits of termination benefits to be paid with respect toemployees belonging to different risk cells, storing information aboutclaims made for termination benefits with respect to the employeesbelonging to different risk cells, comparing the limits of terminationbenefits with the claims made for each of the risk cells, andwithholding benefits when the actual time for a risk cell exceeds thelimit for the risk cell.
 29. The method of claim 28 further comprisingstoring information about the periods of time that an employee mustremain unemployed before termination benefits are paid, comparing thetime periods with an actual time period during which an employee hasremained unemployed, withholding benefits until the actual time periodexceeds the stored time period, notifying the employer that benefits fora given cell have been exhausted.
 30. The method of claim 28, furthercomprising receiving, storing and searching information about employeeseligible for state unemployment insurance benefits, comparing theeligible employees with employees who are terminated from employment bythe employer, withholding benefits when a terminated employee'seligibility status for state benefits matches a rule for withholdingbenefits.
 31. A computer-based method of administering basic andenhanced coverages of insurance products that provide terminationbenefits to employees who are non-voluntarily terminated from employmentby an employer, the method comprising: calculating, storing, reportingand distributing broker commissions, claims administration fees, IPoverride, fronting fees, carrier overhead, and premium tax, andcalculating and reporting required risk based capital.
 32. Acomputer-based method for use in reducing a durational risk associatedwith benefits to be pad under an insurance product that providestermination benefits to employees who are non-voluntarily terminatedfrom employment by an employer, the method comprising: storinginformation that indicates receipt of notification of non-voluntarytermination of an employee covered by the termination benefits, storinginformation that can be assembled into prescripted interviews ofterminated employees, and in response to the stored information aboutnotification of non-voluntary termination, providing a prescriptedinterview to accumulate information useful in placing the employee in anew job, and storing the results of the interview.
 33. A computer-basedmethod for use in reducing a durational risk associated with benefits tobe paid under an insurance product that provides termination benefits toemployees who are non-voluntarily terminated from employment by anemployer, the method comprising: storing information about thequalifications of a terminated employee for reemployment, storinginformation about available jobs, and matching the stored information.